The stock market is often a rough and tumble world fall of volatility and intrigue. The stock market is deeply intertwined with the national and international economic structure. On the individual investor level, people's hopes and dreams can rise and fall along with the unpredictable directions of the stock market. For this reason, corporations and individuals alike pay enormous sums of money to try and gain an edge in maximizing profits through the stock market. As a result, numerous people are tasked with the job of trying to figure out which way the market will turn for individual stocks on the market. A number of ideas and strategies have been funneled into the process of helping investors determine the various scenarios surrounding their stocks. But in the end, these same practitioners are basically involved in what amounts to a high-stakes guessing game. In fact, since the Industrial Revolution, the ability of the average investor and other market participants to predict the vast idiosyncrasies of the stock market has largely been driven by speculation. Numerous attempts and tools have been adopted over the years to better predict what stocks will do, but to date, there has been no reliable indicator to predict the rise and fall that goes along with the stock market. Over the last 100 years, the U.S. capital market has experienced nine crashes greater in magnitude than the catastrophic market crash of 2000/2002. These market failures have been occasioned by what the Federal Reserve Chairman, Alan Greenspan, called “Irrational Exuberance”1 and other market practitioners called speculative bubble. The expression of one's subjective feeling that the market is driven by speculation has not been sufficient to protect investors. Prevailing theories—the Modern Portfolio Theory, the Efficient Market Hypothesis, etc—that underlie the discipline and the practice of finance, and the workings of capital markets are no longer tenable; they neither explain the behavior of markets nor do they provide information necessary for investors to make informed and sound investment decisions. These theories proved useless to investors when the broadest indicators of a diversified market lost vast percentages. Investors lost “70%, 90%, even in some cases all of their holdings”2. A crash of this magnitude is not an aberration; it is a pattern that has robbed millions of individuals of their life's savings for over a century. The methods, processes, and tools that this invention embodies make a contribution to solving this problem by making available standardized and objective metrics and methods for quantifying and measuring market sentiment. 1http://www.fereralreserve.gov/BOARDDOCS/SPEECHEES/19961205.htm.2Fortune Magazine, Sep. 2, 2002, “You Bought, They Sold”
Information gap which increases the risk and volatility of the capital market is another problem that the present invention is designed to make a contribution to solving. A large percentage of the more than 10,000 companies traded on the U.S. stock market alone are not followed by analysts. The lack of analysts researching these stocks presents a gap in reliable information that investors need in order to make informed investment decisions. The present invention satisfies these needs by providing an efficient method of filling the gap with information on the market valuation of stocks. With a tool for quickly and consistently quantifying the portion of a company's stock that is attributable to market sentiment in the hands of investors, they can effectively place demands on research analysts to produce specific research information that supports or justifies the market valuation of companies traded on the exchanges. For example, armed with information on the value of the portion of the company's stock that is attributable to market sentiment, investors can demand directly from a company's management information (financial, operations or market) that supports the company's valuation. Also, if the company does not satisfy requesters' demand for information regarding possession of competitive advantage enabling it to sustain (for example) an above average Sentiment Quotient, then market participants' demand for the company stock will fall. In that event, a reduction in the demand for a company stock will have the effect of occasioning a drop in the price of the stock; a drop in the price of the stock will have an effect of reducing the risks associated with a stock market driven by speculative Bubble or Exuberance.
The metrics, processes, methods, and tools embodied in the present invention provide a new approach for investors to gain transparency and insight into the market pricing of stocks. Instead of pure speculative or otherwise traditional attempts at market analysis to solving the intractable problem of market failure, there is a need for a multi-disciplinary approach toward the stock market—one that employs elements of accounting, finance, risk management, humanitarianism combined with the discipline of systems and information engineering. The methods introduced by the present invention satisfy the needs of market participants by making available to society standardized, quantitative benchmarks, and tools that have the utility of transforming the behavior and improving the performance of capital markets in the U.S. and across the world.
U.S. Pat. No. 6,415,268 issued to Korisch on Jul. 2, 2002, is a method attempting to determine the “real” value of a stock by dividing certain stock pricing data into two components. This method specifically involves an analysis of the “real value of the stock” along with a random function of time, which is referred to in that method as the “noise wave of a stock.” Unlike the present invention, the method as created by Korisch does not delve into a standardized indicator and measurement of market sentiment, but instead relies on less in-depth and more typical items as the short-term fluctuations that can be attributed to such elements as short-term investors.
U.S. Pat. No. 6,832,211 issued to Thomas et al on Dec. 14, 2004, is a method that relies on such tangible indicators as related to technology-based elements. Unlike the present invention, this method as created by Thomas et al relies almost exclusively on such technology-based valuation indicators as scientific research by the company in question, as well as the speed at which this company innovates and research and development links. The very nature of this method differs from the present invention because of the limits on what type of company stock values can be applied based on the technology-based indication focus.
US 2002/0073017 published on Jun. 13, 2002, invented by Robertson, is a method that seeks to employ historical data related to a particular stock in order to rapidly analyze the trading potential. Unlike the present invention, this method does not delve into the area of market sentiment and instead relies on traditional information revolving around the actual history of the stock to present two graphical displays.
US 2002/0116310A1 published on Aug. 22, 2002, invented by Cohen et al, is a method that utilizes a scoring technique to ultimately engage in an unlimited number of comparative stock analysis. Unlike the present invention, this method is primarily functioned to aid investors by customizing scoring criteria for each stock portfolio in an effort to score the comparisons between differing stocks rather than an analysis capability for one specific company stock. This method also does not take into account market sentiment in its comparative analysis.
US 2003/0135445 published on Jul. 17, 2003, invented by Herz et al, is a method seeking to aid investors in predicting elements of company stocks by using “natural language processing” to extract company information from various online news sources. Unlike the present invention, this method does not delve into actual market sentiment and related indicators directly relevant to the stock price, but instead literally takes information from online mediums to predict the stock market. This method differs from the present invention in many ways, including the fact that, unlike the present invention, this method relies solely on online media coverage to make its predictions.
US 2004/40133496 published on Jul. 8, 2004, invented by Hedquist, is a method seeking to determine the health of both the stock market and individual company stocks. Unlike the present invention, this method relies on such items as closing price compared to short and long-term moving averages to quantify a health score for the market.
US 20050086150 published on Apr. 21, 2005, invented by Serpico et al, is a method that creates an algorithm in an attempt to make a veritable point system acting as filters to either encourage or discourage actions regarding various company stocks. Unlike the present invention, this method attempts to employ a three-pronged filter system related to certain technical indicators as opposed to such elements of the present invention including a Market Sentiment Curve.
While there are plenty of methods out there attempting to aid investors in navigating the stock market, none of them satisfies the need for a standard, precise meaning to market sentiment as associated with the present invention. None of these previous methods permit an investor or analyst to study the intensity of market sentiment on a company stock in an objective and standardized way as the methods of this invention enable. Such methods that are included in the present invention as the Market Sentiment Curve, along with the Sentiment Index, and Sentiment Quotient, all are combined into a unique approach designed to ultimately improve and make accessible quantifiable methodology to benefit investors.
As mentioned above, the stock market is a volatile and unpredictable element of society that faces such related issues as bubble, euphoria, psychology, sentiment and even “irrational exuberance” as quoted by former Federal Reserve Chairman Alan Greenspan. In addition, previous methods have failed to specifically address the problem of market valuation of company stock in regard to portions that are not explained by the current operating performance and associated risks of various companies. Nothing out there allows investors the opportunity to use information about a company stock in order to determine the feeling, or market sentiment, surrounding that stock in an analytical, standardized, objective way as the methods that this invention do. The methods as prescribed in the present invention satisfies that need by providing standard quantifications that can be used as a tool to ultimately support determinations of price valuation relating to market sentiment. A standard, complete method designed to assign precise meaning to the market sentiment of the stock market is not only needed, but also necessary for those who risk their finances in the stock market as well as for those who desire transparency and strategy.